Many Chesapeake property owners will eventually be faced with an interesting offer similar to this one:
- A rental applicant explains that they are between jobs and between rental properties, but they have savings and are working actively to find the right job.
- They also might say that they see themselves as bad with money, even if they currently have a job, and would like to ensure that they are never left without enough money to pay the rent.
- They are willing to pay a substantially larger than usual deposit and prepaid rent (for instance, six months of rent) to secure your rental property. What would you do?
As an expert in Chesapeake property management services, we always recommend you turn to a professional like Renters Warehouse Hampton Roads first to get feedback on the validity of such an offer. We can also analyze its likelihood to lead to a good renter relationship.
The first impulse for most property owners is to take the money and welcome the new renter: after all, there's no question anymore about whether you'll receive rent each month! However, before accepting a large payment to get a renter in the door, you'll want to go through your usual tenant screening process to make sure that there is no 'less-than-honest' reason why they want to proceed in this particular way.
Foreword: While we are THE rental experts in Chesapeake, this blog is not legal counsel. If you need live support, get in touch with the Rent Estate™ Advisors at Renters Warehouse Hampton Roads!
Red Flags to Watch for With Prepayment
The main red flags with prepayment fall into two categories: renters who are hoping to eventually force eviction proceedings and get free rent, and renters whose work is outside the legal working world in some way. This typically means that these types of renters would prefer not to describe their profession.
- The first category is sometimes referred to as 'Professional Tenants' because they get into a rental through large prepayments (that often bounce) and then refuse to pay further rent over time.
- This ultimately gets them a discount or even near-free rent, since, by the time you discover they are not planning to leave or pay, you've still got some notice time and eviction proceedings to endure before you can remove them and get new renters.
- Fortunately, good tenant screening practices tend to identify their unique pattern of behavior: renters with great references without a history of evictions, a clean credit history, and a good income relative to their rent payments aren't likely to fall into this category.
The second category is where you may face challenges.
- While some people whose work is illegal may be model renters, some illegal industries are also associated with disturbances in your single-family homes or multi-family units.
- These disturbances may actually damage your property or result in nuisance calls to the police.
- It's not a simple question of 'live and let live' when you enter a contract with someone who, for instance, is selling illegal drugs out of your rental property.
The problem, of course, is that a person with no proof of income but plenty of money to prepay rent isn't automatically in one of these two categories: they could simply be good at saving money and between high-paying jobs.
Once again, your tenant screening process is where you'll determine if there are other reasons to suspect someone of earning money illegally: did they have past strained landlord relationships, unusual credit history, or convictions on their records? If there is nothing to suspect illegal income, you may not need to worry about it.
When in doubt, you can always run the screening process by your Chesapeake property management team and have them handle the process from start to finish. This also provides a professional buffer for you as the property owner.
The Potential Benefits of Prepayment
As mentioned earlier, it's lovely not to have to worry about rent collection each month. Renters who prepay protect you from the risks of an early departure (unless for some very select reasons relating to the military or abuse). In this case, you already have their rent money if they break their lease in a way that you haven't mutually agreed upon.
Prepayment can serve as a form of security for those who are unfortunate enough to be between jobs and between homes at the same time, a guarantee that they're willing to stake their savings on the fact that they'll be able to pay rent by the time the prepayment runs out.
This means that prepayment alone shouldn't be a red flag, and is often offered as a way to mitigate some uncertainty. Just confirm with a screening first that the prepayment isn't used to get you to 'look the other way' about some other aspect of the renter's application.
Ways to Protect Yourself in the Event of Eviction
If you've done your due diligence and you're leaning toward accepting prepayment, there are further ways to protect yourself that we know work here at Renters Warehouse Hampton Roads. Ensure that you're spelling everything out clearly with the renter and following all local laws about security deposits and the ways you're allowed to keep them versus return them.
- Rather than accepting prepayment for six months, some property owners would opt to take four of those months as rent and two of those months as a security deposit or some other combination.
- The reason is that, after the prepaid months, the renter would then need to show proof of income and work to take on a more traditional lease agreement.
- If they refuse to do so, the property owner can initiate eviction proceedings and use the two months of security deposit to recoup some of the losses or any damages that may occur.
This strategy (of accepting prepayment only with a plan to reevaluate in the future) has additional benefits. If someone intended to simply prepay and then never show proof of income (such as with illegal income), this situation wouldn't be advantageous to them. They'd be more likely to move on to a different property, while earnest job seekers would see the runway to acquire a job as a perfectly acceptable compromise.
Of course, we always recommend running these kinds of situations (and potential solutions) past the experienced eye of a Chesapeake property management company like Renters Warehouse Hampton Roads. We'll help you identify any potentially-disastrous pitfalls that could come about from this line of thinking.
You can get started accessing our advice for free using our resources selection right here on our site! If you're ready to grow your portfolio, we recommend starting with our real estate investing guide to growth here in the Coastal Virginia area.
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